Financial Performance Overview

Havertys, a leading retailer of home furnishings, reported a challenging year in 2024 with a 16.1% decrease in net sales compared to 2023. The housing recession, inflationary pressures, and cautious consumer spending due to economic uncertainty contributed to the sales decline. Despite the drop in revenue, the company maintained its gross profit margin at 60.7% in both 2024 and 2023.

Revenue and Profit Trends

Havertys’ net sales in 2024 were $722.9 million, down from $862.1 million in 2023. This 16.1% decrease was driven by a 16.7% drop in comparable store sales. The company saw sales declines across all quarters, with the largest drop of 24.9% in Q4 2024 compared to the prior year period.

While net sales declined, Havertys was able to maintain its gross profit margin at 60.7% in both 2024 and 2023. The positive impact from changes in the LIFO reserve decreased by $8.6 million to $0.8 million in 2024. Excluding the LIFO impact, gross profit margins increased 100 basis points due to improved product selection and merchandising mix.

On the expense side, Havertys’ selling, general and administrative (SG&A) costs as a percentage of net sales increased from 52.9% in 2023 to 58.0% in 2024. SG&A dollars decreased by $36.6 million, or 8.0%, driven by reductions in variable costs like commissioned-based compensation, transportation, and advertising. However, the company was unable to fully leverage its fixed and discretionary costs amid the lower sales volume.

Net income declined from $56.3 million in 2023 to $20.0 million in 2024, with diluted earnings per common share decreasing from $3.36 to $1.19. The drop in profitability was primarily due to the lower sales and the deleveraging of fixed costs.

Strengths and Weaknesses

One of Havertys’ key strengths is its focus on providing high-quality, fashionable home furnishings and exceptional customer service. The company has a team of well-trained sales associates and in-home designers to assist customers. Havertys also maintains control over the delivery function, ensuring a positive “last contact” experience.

However, the company’s performance in 2024 was hampered by macroeconomic headwinds, including the housing recession, inflation, and consumer caution. Havertys was unable to fully offset the impact of these external factors on its sales and profitability. The company’s fixed and discretionary costs, which make up a significant portion of its SG&A expenses, proved challenging to leverage in the face of declining revenues.

Outlook and Future Prospects

Looking ahead, Havertys’ management is focused on capturing more market share and improving profitability. The company’s growth strategy includes expanding its retail footprint and enhancing the customer experience through new products, improved service, and better technology.

To drive profitability, Havertys plans to increase sales volume, maintain strong gross margins, implement targeted marketing initiatives, improve productivity and processes, and adopt efficiency and cost-saving measures. The company’s ability to execute on these strategies will be crucial in navigating the current economic environment and positioning itself for long-term success.

Havertys’ financial position remains strong, with $120.0 million in cash and cash equivalents and $6.3 million in restricted cash equivalents as of December 31, 2024. The company has a $80.0 million revolving credit facility, which was undrawn at the end of the year, providing additional liquidity. Havertys’ disciplined approach to capital allocation, prioritizing investments in the business and returning excess cash to shareholders, should also support its future growth and shareholder value creation.

Overall, Havertys faces near-term challenges due to macroeconomic conditions, but the company’s focus on customer experience, strategic expansion, and cost management initiatives position it to navigate the current environment and potentially emerge stronger in the long run.